This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Why the Stock Market Is So Confusing Right Now


NEW YORK (TheStreet) -- Every week we see stock market benchmarks the Dow Jones Industrial Average and the S&P 500 index near highs. We read and hear that we "are due for a correction," that there are bearish divergences based on endless indicators and that we are in a bubble that can't sustain itself. Yet we look at the indices and nothing looks ominous. Yes, the PowerShares (QQQ), which tracks the Nasdaq 100 index, and the iShares Russell 2000  (IWM) have had a bit of a correction recently, but nothing to really cry about. Everything seems just merry on the surface.

Simple Explanation: I have a very simple explanation for what is taking place in the overall market. The relentless bid we have seen is proof that we are in a very strong market environment (whether it's due solely to the Fed or other factors is irrelevant to this conversation). In such an environment, corrections take place through time and not price. In other words, they tend to be range-bound and rotational.

Instead of having 10%, 15% or 20% corrections in the indices, individual stocks and sectors that have outperformed will take on the burden of the corrections and pass the baton to another sector to outperform.

In such an environment, breadth will be weak and bearish divergences will exist. Whether this continues or the divergences are finally heavy enough to pull the overall market into a correction remains to be seen. But until price follows the bearish indicators, short-selling in this market will be frustrating with the exception of very quick trades.

Strategy for This Week: I prefer to use index options for short-term trades when I see a good risk/reward setup based on strong resistance and support levels. But the narrow ranges leave me sticking to individual stocks for now. The path of least resistance is still to the downside. Selling rallies in stocks, specifically the momentum, highly liquid stocks that have been underperforming recently, is currently the approach that makes the most sense. However, in order to remain open-minded about further upside rallies and a new bullish trend, I have outlined a list of things I will be looking for that would shift my views:

  • Momentum stocks gain lasting momentum. Many of the previous highfliers, such as Facebook (FB), Netflix (NFLX), Google (GOOGL), Tesla (TSLA) and Priceline (PCLN), have moved off their lows, but not by much. The move up last week should be viewed as an oversold bounce until proven otherwise. Seeing follow-through will be important.
  • Stocks rally upon delivering good earnings instead of selling off. Some examples from last week include LinkedIn (LNKD) and Yelp (YELP). The former failed to rally, and the latter wasn't able to hold onto gains from its initial rally.
  • iShares Barclays 20+ Year Treasury Bond ETF (TLT) comes back down. On Friday, even after the monthly jobs report showed a drop in unemployment, bonds made a high not seen since June of 2013. If bonds continue to rally, risk-off will continue to be the story.

1 of 2

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 18,053.71 +23.50 0.13%
S&P 500 2,088.77 +6.89 0.33%
NASDAQ 4,806.8590 +33.3870 0.70%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs